Econ Chapter 12

The socially optimal price (P = MC) is socially optimal because:

It achieves allocative efficiency.

Marginal Revenue is the change in

total revenue

The MR curve of a perfectly competitive firm is horizontal. The MR curve of a monopoly firm is:

Downsloping

MR for the monopolist compared to that of a pure competitor

declines and is lower than the product price

When the demand for a good is price elastic, an increase in its price will _____ total revenue

decrease

Even though both monopolists and competitive firms follow the MC = MR rule in maximizing profits, there are differences in the economic outcomes because

pure competitors are small with no market power.

Considering the industry structures of pure (perfect) competition and pure monopoly, a firm will experience a more inelastic demand curve in which form of industry?

pure monopoly

The demand curve facing a

purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price.

3 assumptions of pure monopoly

1. Patents, economies of scale, or resource ownership secures the firm's monopoly. 2. No unit of government regulates the firm. 3. The firm is a single-price monopolist; it charges the same price for all units of output.

What is the term for factors that prohibit firms from entering an industry?

Barriers to entry

What is the difference in demand between a purely competitive seller and a monopolist?

Demand for the purely competitive seller is perfectly elastic, and demand for the monopolist is not.

Assume a monopolistic publisher has agreed to pay an author 10 percent of the total revenue from the sales of a text. Which of the following statements is true?

The author would prefer a lower price than the publisher.

Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has:

The lower elasticity of demand.

Indicate whether the statement is true of false a. Because they can control product price, monopolists are always assured of profitable production by simply charging the highest price consumers will pay. b. The pure monopolist seeks the output that will yield the greatest per-unit profit. c. An excess of price over marginal cost is the market's way of signaling the need for more production of a good. d. The more profitable a firm, the greater its monopoly power. e. The monopolist has a pricing policy; the competitive producer does not. f. With respect to resource allocation, the interests of the seller and of society coincide in a purely competitive market but conflict in a monopolized market.

a. false b. false c. true d. cannot be determined e. true f. true

two legal _____ to entry are patents and licenses

barriers

With a fixed downward-sloping demand curve, how can a monopolist increase sales?

by lowering the price

The demand curve faced by a purely monopolistic seller is 1. perfectly inelastic, whereas that facing the purely competitive firm is perfectly elastic. 2. downward sloping, whereas that facing the purely competitive firm is perfectly elastic. 3. downward sloping, whereas that facing the purely competitive firm is perfectly inelastic. 4. perfectly elastic, whereas that facing the purely competitive firm is perfectly inelastic.

downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

For a pure monopolist, total revenue increases at an increasing rate

false: diminishing rate

Because marginal revenue is the change in total revenue, marginal revenue is positive while total revenue is ________

increasing

Assume that a pure monopolist and a purely competitive firm have the same unit costs. In the case of a pure monopolist, resources will be allocated

inefficiently, because the monopolist does not produce at the point of minimum ATC and does not equate price and MC.

The costs of a purely competitive firm and a monopoly may be different because

monopolies might experience economies of scale not available to competitive firms.

When total revenue is diminishing, marginal revenue is ____

negative

The pure (profit maximizing) monopolist's demand curve is not

perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0.

If a monopoly can experience economies of scale, it can

reduce the price below a pure competitor and improve resource allocation.

What aspect of the market defines the crucial difference between a pure monopolist and a purely competitive seller?

the demand curve

In a pure monopoly, marginal revenue is less than price for every unit of output except which one?

the first one